Archive for July 10, 2012

Hope trumps fear in election years. At least, that’s the stock-market adage: In American presidential election years, equities historically produce positive returns.

So far in 2012 the election year pattern is holding strong, according to Bespoke Investment Group. The benchmark index S&P 500 has closely followed the typical presidential election-year trading pattern: peaking in April, then falling in June. The coming months before the November election could produce a nice rally.

But does the U.S. economy actually support such an election year snapback? Right now, it’s a toss-up.

“President Obama chose his words poorly when he recently said that the private sector is ‘fine,’ but it is worth keeping in mind that U.S. companies are sitting on record levels of cash and earnings remain strong,” notes OppenheimerFunds chief economist Jerry Webman. “Borrowing is cheap for those with access to it, and we’ve seen commercial and industrial loans climb steadily since late 2010. Small-business optimism, as measured by the National Federation of Independent Businesses, is near its best level of the recovery, though still below precrisis levels, while small-business earnings are the highest they’ve been since 2006.”

With the election just four months away, our focus on economic data will sharpen. Under Obama’s administration, starting with January 2009, here are some numbers that define the state of the economy:

Total nonfarm payrolls have decreased by 1.3 million from December 2008 (134,379,000) to June 2012 (133,088,000). Source: St. Louis Fed.

Full-time jobs, based on the Household Survey, have decreased by 2.5 million from 117,039,000 to 114,573,000. Source: Bureau of Labor Statistics

Part-time jobs, based on the Household Survey, have increased by 1.6 million to 27,894,000 from 26,318,000. Source: BLS.

Food stamp recipients have increased by 14.6 million to 46,18,000 from 31.567 million (as of April 2012). Source: USDA

Disability recipients have increased by 1.3 million from 7.427 million to 8.733 million. Source: Social Security Administration

Over the same time period (42 months since Obama took office), total public debt-to-Gross Domestic Product has risen from 76.7 percent to 101.7.

Don’t trade on ruling

Joseph Costigan, director of equity research at Bryn Mawr Trust, says it doesn’t really make a lot of sense to play the Supreme Court decision on the Affordable Care Act “because it could get reversed.” Moreover, he argues that a lot of the sentiment surrounding the decision has been priced into the market.

Instead, his firm focuses on buying companies that it believes will benefit no matter what happens with the legislated health-care reform. “Even in down markets, good businesses go up.”

Bryn Mawr Trust’s Costigan holds shares of lab testing concern Bio Reference Labs (symbol: BRLI), which is a regional firm with expected earnings growth in the double digits, worth $27 a share, he believes. The investment firm also holds Amgen (symbol: AMGN) and Almost Family (symbol: AFAM) in client portfolios.

Almost Family is a roll-up of home health care businesses around the country, with locations in Florida, Kentucky, Connecticut, New Jersey, Ohio, Massachusetts, Alabama, Missouri, Illinois, Pennsylvania and Indiana, in order of revenue.

Leaving behind legislated health care, Costigan also has been buying international biotechnology concern Mindray Medical (NYSE: MR). The medical-device company recently paid $35.5 million for a controlling stake in Wuhan Dragonbio Surgical Implant Co., a Chinese company that makes trauma, spine, joint and other orthopedic products. Mindray’s traditional areas of business have been patient monitoring, in-vitro diagnostics, and medical imaging. Costigan said he started buying the stock over a year ago, and has a price target of $35 a share, expecting 17 percent annual earnings growth. The stock currently trades at $29.